Josh Gordon is assistant professor and Anjum Mutakabbir is a master’s student at Simon Fraser University’s School of Public Policy.
When a government doesn’t want to address a thorny issue, a typical move is to delay action with a call for more information. Further study is justified in the name of good policy. But sometimes further study, when sufficient evidence already exists and the situation is a crisis, is unacceptable.
So it is with the question of foreign ownership of housing in Canada, specifically in Vancouver and (to a lesser extent) Toronto, which is fuelling home prices so much that resident Canadians are being squeezed out of those housing markets. We don’t need to wait around for data to tackle the issue – we need action now.
Two main reasons support this conclusion. First, we already have substantial evidence of the major role played by foreign money in the housing market. Second, some of the policy options to address the problem don’t require painstaking data, as we’ll explain. Evidence for the role of foreign money driving soaring prices in Vancouver is compelling in three main forms: the history of the business immigrant program, recent studies of ownership of high-end homes and recent fluctuations in prices.
Research by University of British Columbia (UBC) geographer, David Ley, lays out in great detail how growth of the program from the 1980s onward led to rising house prices in Vancouver, as mainly Chinese money flowed into the area. The general public and certainly our governments have access to the data.
Around 200,000 migrants arrived in Vancouver through the business immigrant program from 1980 to 2012, and now constitute 8 or 9 per cent of the region’s population. The investor stream of the program brought in $35-billion to $40-billion to the region from 1988 to 1997 alone. Prof. Ley’s research suggests that these figures have mushroomed since then.
Recent studies have confirmed that this flow of migrant wealth has had a major impact on the high-end real estate market. A study by Andy Yan, for example, showed that that 66 per cent of all sales of 172 detached homes in three west-side Vancouver neighbourhoods within a six-month period were to buyers with non-anglicized Chinese names. Of the properties that sold for more than $5-million, 88 per cent went to buyers with non-anglicized Chinese names.
While some analysts claim that this has no impact on the rest of the market, it doesn’t take much imagination to see how it creates cascading price pressures elsewhere: When many higher-income Canadians can no longer afford the most expensive neighbourhoods, they buy in less expensive parts of the city, which in turn pushes out those who would previously buy in those neighbourhoods, and so on.
Lastly, the events of the past year should put this question to rest: from January, 2015, to January, 2016, the benchmark price for detached homes, condos and townhouses sold in Greater Vancouver surged 19.6 per cent.
At the same time, the battered Canadian dollar lost about 10 to 15 per cent of its value and $1-trillion (U.S.) left China seeking safety. There were no sudden movements in interest rates, local incomes, the supply of housing or anything else that might explain such a price spike in Vancouver.
Using various surveys and data, three economists at National Bank of Canada estimate that Chinese investors spent $12.7-billion on Greater Vancouver residential real estate in 2015 alone, or a third of all sales. (In Greater Toronto the figure is 14 per cent.)
So the case for foreign money’s impact is already strong, and to be clear, the problem is that it is foreign, not that it happens to be money coming from China.
But we don’t even need certainty about the magnitude of foreign ownership to adopt important policy solutions.
One such solution is to impose a progressive property surtax on homes over a given threshold and allow homeowners to deduct this tax against their income tax. Provisions or exemptions could be developed for residents who are retired. This would target the tax squarely on foreign buyers who make little or no income in Canada. But here’s the beauty of this proposal: If foreign money isn’t playing a large role in affordability, then prices will be unchanged, we’ll receive modest revenue from these wealthy foreign owners, and the tax will be a wash for Vancouverites. But if foreign money is playing a large role, significant revenue will be collected and affordability will improve as these investors choose to put their money elsewhere and/or sell their holdings. Either way, the vast majority of Vancouverites win.
If the B.C. government really believes that foreign money is playing a minimal role in housing prices, as it maintains, then it should put its view to the test and adopt the policy. Delaying action and thus fuelling the bubble is irresponsible and wastes valuable time in a growing crisis. By all means collect the data – but don’t wait to act.Report Typo/Error